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Managing Risk in Africa through Institutional Reform


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Title: Managing Risk in Africa through Institutional Reform

Managing Risk in Africa through Institutional
Phillip LeBel, Ph.D. Professor of
EconomicsSchool of Business Montclair State
UniversityUpper Montclair, New Jersey
Understanding Africas Weak Economic Performance
  • By almost any measure, Africas economic growth
    has been weak over the past twenty-five years
  • While mean PPP GDP per capita has increased by
    modest amounts, median PPP GDP per capita has
    hardly increased at all.

The Mixed Record of African Development
Adult Illiteracy Rate
Drought Frequency in Africa
Cereal Crop Yields
Africas Share in World Trade
Africas Share in Global Merchandise Trade
Reframing African Development Strategies Must
Begin With An Emphasis on Risk Management
  • Aggregate country risk, which includes political,
    economic, financial, and environmental factors,
    is inversely related to the level of per capita

Corruption is a Determinant of Risk
  • Corruption is directly related to the level of

In turn, corruption is a function of several
  • Judicial independence is inversely related to the
    level of corruption

  • Economic Freedom Affects the Level of Per Capita
  • Economic freedom, an important contributor to
    development, has improved little in Africa over
    the past twenty-five years.

International Aid has had a negative impact on
per capita GDP
Rising International Aid In Africa
  • International aid, which has often served
    political over economic interests, has largely
    failed to raise per capita income in Africa, even
    when increases have been made.

As a result, even rising levels of FDI have had a
lower impact than elsewhere
  • As a result, even rising levels of FDI have but a
    limited impact on economic development in Africa.
    In part this is because the level of FDI is so
    small relative to GDP, which in turn reflects the
    overall level of aggregate country risk.

Despite political instability, military spending
in Africa has remained relatively low
  • Despite political instability, military spending
    in Africa has been lower than in some developed
    countries. At the same time, it has been higher
    than in most parts of Asia, China and North Korea
    being the principal exceptions.

The Quality of Institutional Governance is a Key
to Managing Risk
  • Property rights in Africa have experienced some
    modest improvements, with some relapses in more
    recent years. The effect has been negative on
    the level of economic freedom, with higher risk
    resulting in lower levels of per capita GDP.

Democracy Offers Some Modest Gains in Per Capita
  • Democracy, which in addition to transparent and
    fair elections, consists in the level of civil
    liberties and political rights. Despite some
    gains in Africa, the effects on per capita GDP
    have been weak.

Some Stylized Patterns of African Development
Determinants of Risk in Africa
Panel Nested Regression Equations
Basic Model Estimating Equations
Basic Model Institutional Valuations
  • Estimates are based on parametric changes in
    selected independent variables

Regional Variation Valuations
Africa Sample Profile
Model Descriptive Statistics
Model Definitions and Sources
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